Oil extended its gains after closing at a six-week high as signs of stronger demand in key markets offset concerns that a Covid-19 resurgence in some countries, particularly India, will dampen consumption in the short term.
New York futures traded above $ 64 a barrel after rising more than 3% in the last two sessions. Demand for US petroleum products rose last week to its highest level in more than two months, while distillate inventories – a category that includes diesel – declined the most since early March. Fuel demand could get another boost as China pauses for an extended vacation on Saturday and mobility is expected to hit record levels.
The market rally is affecting large oil companies. Royal Dutch Shell Plc’s earnings rose faster than expected in the first quarter, while Total SE also had a strong start to the year. Some U.S. producers are also restoring their dividends as they recover from the pandemic-triggered crash.
There were a number of bullish voices on the outlook for crude oil this week, including a forecast by Goldman Sachs Group Inc. that oil demand will see record spikes over the next six months if vaccination rates accelerate. OPEC + has also raised its growth estimates for this year, but the alliance warned of a worsening virus situation in India, Japan and Brazil that could affect the recovery.
India was hit particularly hard by a second wave that depressed fuel consumption and caused some refineries to consider increasing exports to avoid deep cuts in crude oil processing. Rystad Energy trimmed its demand estimates for the country and, due to the impact, forecast a 1.4 million barrels per day surplus of global inventories for the next month.
“The Covid-19 pandemic continues, but economic and oil demand recovery continues, driven by the US and mainland China,” said Victor Shum, vice president of energy advisory at IHS Markit. “Demand for pent-up travel will drive profits in Europe and North America, assuming the pandemic is more under control in the months ahead.”
The short-term risks to the demand outlook are gradually becoming apparent in terms of market health. The structure of the Dubai Middle East benchmark turned into slight contango on Thursday, suggesting that the market tightening may ease. The quick span for Brent has also decreased.
Total U.S. oil inventories fell for the second time in the three weeks ending April 23, and are near their lowest level since March 2020, according to a report by the Energy Information Administration on Wednesday. Crude oil inventories rose while gasoline inventories were in the fourth Week rose.